General liability policies insure against fortuitous events, otherwise known as accidents or occurrences. Intentional acts generally are not covered except under limited circumstances. But what about discrimination claims? Is a discrimination claim an occurrence under a general liability policy? The Second Circuit recently had that question and, instead, decided to certify the question to to the New York Court of Appeals.
In Brooklyn Center for Psychotherapy, Inc. v. Philadelphia Indemnity Insurance Co., No. 19-2266-cv (2nd Cir. Apr. 9, 2020), a hearing-impaired person was refused services by the policyholder and brought a discrimination claim based on a failure-to-accommodate theory. The policyholder sought a defense from its insurer and the insurer denied coverage because the complaint did not allege an occurrence. The policyholder brought suit seeking a defense and the district court granted the insurer’s motion to dismiss the complaint.
On appeal, the Second Circuit reserved decision and certified the question of coverage to the New York Court of Appeals. The circuit court found that the New York Court of Appeals had not yet addressed whether a general liability insurance carrier must defend an insured in an action alleging discrimination under a failure-to-accommodate theory.
The court focused on whether the policyholder’s actions was an “occurrence” or “accident” under the policy. Citing earlier precedent, the court noted that recovery will be barred only if the insured intended the damages or if the damages were intended by the insured because the insured knew that the damages would flow directly and immediately from its intentional act. See City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146, 1149 (2d Cir. 1989). Under New York law, the court stated, damages that are not intended by an insured are “accidental,” and an act causing the unintended damages is considered an “occurrence.”
But as the court noted, there is a distinction between damages that flow directly and immediately from an intended act, and damages that accidentally arise out of a chain of unintended though expected or foreseeable events that occurred after an intentional act. In other words, coverage is not barred any time an insured performs an intentional act that ultimately causes damage. The court stated that an intentional act may ultimately cause damage and those damages may, under New York law, be considered “accidental” if the total situation is found to be an accident.
The court turned to the discrimination claims, which the insured argued included intentional discrimination claims and a claim of discrimination by failing to accommodate the claimant’s hearing disability. The insurer countered that the failure-to-accommodate claim was intentional too and could not be an occurrence under the policy. The court went on to analyze coverage for discrimination claims under New York law.
The court found that courts in New York have addressed insurance coverage for discrimination claims in the context of intentional discrimination (disparate treatment) and disparate impact. The court discussed cases and regulatory guidance holding that under New York law there is no coverage for suits alleging solely disparate-treatment discrimination. Conversely, at least one court and the regulator have held that insurers have to cover disparate impact claims.
What was undecided under New York law was whether a failure-to-accommodate claim can be covered as an accident. Ultimately, the court concluded that the policy was ambiguous as to whether there was coverage for failure-to-accommodate claims. Accordingly, the court asked the New York Court of Appeals to answer the following certified question: “Must a general liability insurance carrier defend an insured in an action alleging discrimination under a failure-to-accommodate theory?”